LeapRate's Daily Forex Industry Newsletter

Join now to receive first access to our EXCLUSIVE reports and updates.

Screenshot of a breaking news alert e-mail from Q2 2017

Please check your email to confirm your subscription

Something went wrong

We hate SPAM and promise to keep your email address safe

If the crypto blockchain is anything, it is transparent, but only to a degree. Account addresses and their balances are in full public view. Researchers are free to slice and dice the data in a myriad of ways, but what they cannot see, unless it is publicly disclosed, are owners of particular accounts. The top ten accounts, the biggest “Whales” in the system, own $5.4 billion of the Bitcoin market, or roughly a 5% market share. Per Wimmer, a former Goldman Sachs banker, contends that these Whales can easily manipulate prices to such an extent that institutional investors have kept their distance.

Per Wimmer is no longer with Goldman Sachs. He founded Wimmer Financial LLP, a London-based corporate-advisory firm, and he believes: “The crypto market is dominated mainly by ten big whales or privates. They are massive in the market and take up a lot space and volume so if you take the top 10 or even 50 you will have a lot of the volume covered already. It is too easy to manipulate the market so far.” The largest today is $750 million, while the tenth spot is a meager $329 million at today’s prices.

Wimmer recognizes one of the primary concerns regarding cryptos that troubles regulators. As we once reported: “Stock exchanges in the United States typically have surveillance systems that monitor transactional activity for potential instances of abuse or manipulation. Per Chairman Clayton:

What investors expect is that trading in the commodity that underlies that ETF makes sense and is free from the risk of manipulation. It’s an issue that needs to be addressed before I would be comfortable. Those kinds of safeguards do not exist currently in all of the exchange venues where digital currencies trade.

As for the data, there are websites that aggregate such information for public review. A list of the top 100 account addresses reveals that these “Whales” control nearly $14 billion or approximately 13% of the entire Bitcoin market capitalization. Once you also accept that roughly one third of Bitcoins available for trading are for technical reasons “off the books”, then the power of these account holders is even greater still. Wimmer, however, has focused on the “Top Ten”, which could easily manipulate prices, especially when times of low liquidity prevail.

A few of these massive accounts are “cold wallets” for major exchanges. We might also guess that a number of traditional brokerages may have established beachheads in the crypto space, in order to serve their institutional investors on their OTC trading desks. These accounts may have been the evidence for a recent report from the researchers at Binance that concluded that institutional investors already owned and controlled roughly 7% of the total crypto-verse of token offerings.

Wimmer, who has extensive dealings with family offices and private capital investors, does not share this opinion that major amounts of institutional capital have already made their way into Crypto-Land. The people he talks to are put off by the crypto exchange compromises, the loss of funds due to outright fraud in ICO scams, and, yes, price manipulation. He remains positive: “Crypto is very niche. It is here to stay and remain for a considerable amount of time as a niche [investment]. There is a degree of validity about crypto. I like the fact it is intimidating governments. I think it is great to have that aspect of it.”

As for price manipulation maneuvers, which are many, André Bruckmann, the founder of Mycro, explains:

Price manipulations at Bitcoin are extremely expensive due to its liquidity, essentially benefiting no one. For example, if a large Bitcoin holder sells large quantities of BTC, the price will only fall if it is placed at the market price and this will lose money. The same applies if a large investor places a large buy order for BTC at the market price – the price rises and he buys at too high a price. Large volumes are usually settled OTC and this does not affect the price on exchanges at all.

At the end of the day, the crypto market is young. The number and diversity of investors must grow over time, and it will. According to Charles Hoskinson, the founder of cryptocurrency Cardano (ADA) and the CEO of IOHK:

The really smart money is aware that the market is not yet stable. It is not at the level of maturity to support institutional surge. Within the next 12 to 24 months I think the environment will be ready for institutional money to enter, and it will enter with a toe in the pool.

Your Forex Industry Source

LeapRate is an independent research and advisory firm, specialized in covering the world of Forex trading. We are followed by hundreds of thousands of traders, investors and other FX industry participants via our website, Facebook, Twitter, LinkedIn, RSS and Email Newsletter.Email: [email protected]